Takeovers

When someone else steps in

A takeover is when a company makes an offer to take control of another company by buying enough shares so they can run meetings and decide who gets elected as directors. 

If you own shares in the target company, there are a number of things to consider before you decide to accept the offer. You should also understand what happens if you decide not to accept the bid, or vote for the scheme. 

How a takeover works

Usually a takeover bid or scheme of arrangement will be used.

With a takeover bid, you will receive a written offer to buy your shares, which you can either accept or reject.

If a scheme of arrangement is used, all shareholders will vote on the offer and your shares will be acquired only if the resolution is passed. 

If you are a shareholder of the target company, you could be offered cash, shares or a combination of both.

Before you decide

Read the documents

You will receive different documents depending on the kind of takeover offer. Make sure you read and understand what you need to do to either accept or reject the offer.

You should also keep track of any changes to the bid or scheme, as well as the share price of the companies involved.

Takeover bid documents

In takeover bids, once a bid is announced, the bidder must make an offer to buy your shares within 2 months.

You will receive two statements. The bidder's statement describes what the bidder is offering you for your shares. It also describes who the bidder is, what it does and what the bidder intends to do with the company if the takeover is successful.

You will also receive the target's statement from the company you own shares in. It usually contains a recommendation from the company's board on whether you should accept or reject the bidder's offer. You should read through the target's statement thoroughly and think about whether you agree or disagree with the board's recommendation and the supporting reasons.

You should wait until you have read the target's statement before responding to the bidder's offer.

Scheme documents

With schemes, you will receive a scheme booklet from the company you own shares in. There are additional requirements for schemes that mean you may not get the scheme booklet until a few months after the scheme is announced.

The booklet will include the following information:

  • What you will receive under the scheme
  • Who will acquire your shares
  • If you are offered shares in the company that is buying your shares, what the two companies will look like once merged.

The scheme booklet may also include an independent expert report that outlines whether or not the offer is fair and reasonable and in your best interests.

Under a scheme, the offer will be put to a vote of all shareholders and your shares will only be acquired if the resolution is passed. You should read the scheme booklet carefully before deciding how to vote. You can vote in person at the scheme meeting or send in your proxy form.

Understand the conditions

Many takeovers and schemes are conditional. For example, a common condition of a takeover bid is that the bidder must acquire a minimum number of shares under the bid. If the minimum number is not acquired, the bid will not proceed.

Conditions are usually disclosed when the bid or scheme is first announced. 

During a takeover bid the bidder can drop certain conditions up to 7 days before the offer closes. You may want to wait until this final period to decide so you can see what the bidder does. If you accept the takeover offer straight away, you may not be able to withdraw your acceptance if a better offer is made later.

Look out for changes to the bid or scheme

When a takeover bid or scheme is announced, things can move quickly. The price offered may increase, or the period for accepting the takeover bid may be extended. Follow the media to see if the bidder has changed its position on anything in relation to the transaction. 

You should visit the Australian Securities Exchange (ASX) website regularly to see if any announcements have been made. In some cases, information will be in ASX announcements, rather than sent to you directly. 

Watch the share price

The share price can be a good indicator of whether the market thinks the bid or scheme will succeed. Generally, when the bid or scheme is first announced, the price of shares in the company rises to around the level of the offer price. If the market expects a better offer to emerge, share prices can sometimes be higher than the offer price. On the other hand, if the market thinks the offer is unlikely to succeed, the share price may be less than the offer price. 

If you are happy with the price offered, and the market price is around the offer price, an alternative may be to sell your shares on market.

Case study: Susanna decides on a takeover

""A company has made a takeover bid for Green Time Corporation, offering its own shares as consideration. As a long-time shareholder, Susanna wants to know whether she should accept the takeover offer. She reads the bidder's statement, which says that the 'implied value' of the offer (the value of the shares on offer based on recent trading prices) is above Green Time's current market price.

Susanna thinks about accepting but wants to make sure. She waits to read the target's statement. In the statement, Green Time's board urges shareholders not to accept the takeover offer as it believes Green Time is being undervalued and the bidder's shares are illiquid and volatile. After reading the target's statement, Susanna agrees and decides to hold onto her shares and not accept the takeover offer.

If you accept the bid or the scheme is approved

Accepting a takeover bid

If you accept the offer and the conditions of the offer are satisfied at the end of the offer period, you sell your shares directly to the bidder without paying any brokerage costs. The timing for the bidder to pay you cash and/or provide you with the shares it offered will be set out in the bidder's statement.

Provided you have given the bidder the necessary documents, you should receive the cash and/or shares the bidder is offering no later than 21 days after the bid is closed.

When a scheme is approved

If the scheme is approved by the shareholders it must then be approved by the court before it can be implemented, and the cash and/or shares are paid to you. The FAQ section in the scheme booklet will explain the likely timing, and what events could delay the process. 

If you don't accept the bid or vote against the scheme

Not accepting a takeover bid

If you decide not to accept the offer, you generally do not have to sell your shares to the bidder. However, if they get 90% or more of the company they may be able to compulsorily acquire your shares on the terms offered under the bid.

If the bidder gets a large controlling stake in the company but less than 90%, the market for your shares may be less liquid, which will make them harder to sell to anyone else later. The bidder will have control of your company, so they can influence the decisions such as board appointments and dividend payments.

Not accepting a scheme

Schemes are 'all or nothing'. If enough shareholders voted in favour of the scheme and the court approves it, then all shareholders (including you) are bound even if you voted against it. This should be clearly described in the scheme booklet, such as in the FAQ section.

If you need further advice on takeovers, consider talking to your financial adviser, a stockbroker, accountant or lawyer.


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Last updated: 20 Aug 2013